By Craig Bertorello
Theres no room for mistakes in todays economyand that includes building or re-engineering distribution centers.
Because these facilities are critical components of the supply chain, they require a detailed planning process to ensure they meet return on investment expectations.
More than ever, the measure twice, cut once rule applies, since having to tack on additional capital outlays five, six, or seven years down the road is costly. The projection of inventory and how it is to be stored and moved are the driving factors, as a 20% deviation on a 200,000 square foot storage area can result in a 40,000 square foot shortfall or surplus.
In the final design phase, picking and storage will rule the day; yet they have opposing agendas. Large storage areas increase travel distances and reduce the picking efficiency. On the other hand, the ideal picking operation requires relatively small amounts of product stored in dedicated locations, relatively close to one another, which works counter to a facilitys storage efficiency.
When considering the design and layout of a new distribution center, its important to first consider which of the four scenarios most closely resembles your operation:
* Low Activity / Low Storage Requirements. This combination represents the simple, smaller warehouse operation. Rarely are automation or sophisticated storage and picking mediums or devices justified for these smaller operations. In most instances, floor storage, stacked pallets, simple pallet racks and/or conventional shelving are utilized within the facility, along with manual handling.
* Low Activity / High Storage Requirements. This combination typically calls for high bay, multi-level, high-density storage, and a random location strategy. Order picking can be manual or semi-manual.
* High Activity / Low Storage Requirements. This combination generally suggests a very condensed forward picking area supported by simple overstock storage. The high pick activity level often justifies automating the order picking system and the use of automated material handling systems.
* High Activity / High Storage Requirements. This combination is characteristic of a typical large distribution center. The high pick activity and high storage requirements often justify the use of exceedingly automated order picking systems, heavily automated material handling and sortation systems and high-density storage.
Once the storage and picking scenario is understood, taking into account economic forecasts (consumer spending habits down in todays stagnant economy could change over the next few years, and inventory requirements with it), the planning process is now off and running.
Keeping in mind that a distribution center may be a companys largest capital investment, as well as the final stop before the product reaches the customer (or doesnt), its imperative the planning is done perfectly the first time. To accomplish this objective, here are seven critical steps to follow when planning a warehouse or distribution center.
1. Define goals and objectives. These should be closely aligned with the overall strategy for the new facility. They can be defined as minimizing warehousing operating costs, maximizing picking productivity, or simply providing the best customer service. They can also be defined more specifically, such as maximizing cube utilization, providing maximum flexibility in the final layout to accommodate future expansion or changes in business, or maximizing efficiency and productivity with a minimal amount of resources.
2. Document the process. Review the existing or proposed methodology and process, and conduct personal interviews with the staff dedicated to all major functional areas within the process. Recent changes in the economy may have caused some downsizing and movement of personnel to work areas they may not be totally familiar with, so be sure to interview enough people familiar with each functional area. If those interviewed cant identify areas of opportunity for improvement in their department or area, you should look to interview more from that department or functional area as there is always room for improvement.
3. Collect information and data. Collect any and all information specific to the new facility. Since it is best to work from inside the facility out when considering new construction, dont let any building constraints restrict design. When considering existing space for the new facility, make sure the information includes accurate drawings showing column sizes and locations, dock and personnel doors and locations, ceiling height restrictions, and ceiling girder/joist construction. It is also important to collect all relevant product information pertaining to the number of stock keeping units (SKUs) to be stored and picked within the facility, along with their dimensional measurements, weights, order history, and velocity data.
4. Analysis. Once information about the building and the inventory has been collected, a thorough analysis should be performed in order to determine if the goals and objectives can be obtained. The analysis should answer the following questions:
* How well does the product flow into, within, and out of the facility?
* Does the forward pick area (pick modules) hold sufficient inventory to avoid excessive replenishment requirements?
* Is the storage system and area large enough to accommodate the inventory including any required safety stock?
* What type of conveying and sortation equipment will be used?
* What are the staffing requirements?
* Does the operating budget include staffing, maintenance, utilities and the cost of the information system?
* How well will the facility adapt to a change in operating requirements?
* How effectively will the warehouse management system work with the automated material handling system?
If the analysis determines the goals and objectives can be met, the detailed solution and project plan can then be developed. If they cannot be met, then management should determine an alternate plan of action such as modifying the goals and objectives or making substantial changes to the building design.
5. Create a detailed project plan. This plan should identify all the steps required to create the warehouse or distribution center layout, including the overall goals and objectives, and the results of the information and data analysis used in developing the plan. The project plan should contain the major tasks to be undertaken, the resources needed to achieve each task, and how much time should be allotted to accomplish the tasks successfully.
The project plan should include start and end dates for all tasks, as well as availability of resources. Once the plan has been developed, it should be reviewed and checked to be sure the timeline is realistic and attainable, as the available occupancy date of a new facility will dictate equipment delivery and installation.
6. Implementation. The implementation phase of the project is when the rubber meets the road. Its during this phase that the layout is transformed from concept to reality. All resources within the new facility need to work together to ensure the project plans goals are met. Since there is a set order in which components of the system should be installed, delivery of all products is carefully coordinated so as to arrive at the time when it is needed.
Like a race car which is tuned to perform its best at each individual race track, this phase is when the system gets tuned for peak performance. Timing for the sortation systems and merges are set to maximize throughput. The pitch to be used for the carton and pallet flow racks is adjusted in order to meet the users satisfaction.
The time from establishing system goals to completion can in some cases be over a year and, on occasion, changes are requested during the implementation phase in order to meet the most current objectives. Its important to remember that all of these changes or deviations from the original plan must be well documented so that expectations for all stakeholders are managed properly.
7. Post project review. Once the project has been completed and inventory is moving smoothly in and out of the facility, a closeout meeting should be scheduled. This session will include a discussion with the implementation team as to whether the final layout was implemented as originally designed and approved, and to confirm that any changes were appropriately documented. This step is critical for future project planning.
A well-designed and well-planned warehouse or distribution center offers multiple advantages in the fight to remain competitive and successful. By taking the necessary steps to see the project through from start to finish, the result will be a facility that operates efficiently, uses space effectively, maintains cost control, and in the end achieves its ultimate goal of meeting expectations.
Craig A. Bertorello is Vice President of Operations at TriFactor, LLC, a Florida-based material handling systems integrator (www.trifactor.com ). He has been with the company since 1993 and holds a BS degree in Industrial Engineering from the University of South Florida. Contact him at 863-577-2263, or cbertorello@trifactor.com For more information, visit www.trifactor.com
Yesterday’s Second Circuit decision upholding New York State’s three-tier system against challenges by out-of-state retailers “could have significant ramifications” on a similar case pending before the Fifth Circuit Court of Appeals, Craig Wolf, president, Wine & Spirits Wholesalers of America, said.
“This unanimous opinion clearly and forcefully reinforces WSWA’s view that the landmark 2005 Supreme Court decision in Granholm v. Heald preserved a state’s right to control the distribution of alcohol,” he said, adding:
“States not only have the right under the 21st Amendment, but also the responsibility, to require all alcohol be distributed through a controlled and regulated system designed to prevent underage access and ensure product integrity. This decision is a strong affirmation of state power and will cast a long shadow over other pending cases, particularly the Texas Siesta Village case currently before the Fifth Circuit.”
Beer wholesalers were equally pleased. Craig Purser, president, National Beer Wholesalers Assocation, said the decision “upholds the current state-based system of alcohol regulation and validates the three-tier system. It is unfortunate that plaintiffs’ attorneys continue to pursue profits ahead of the public’s interest by attempting to strike down effective laws that provide a balance between the consumer’s interest in choice, variety and selection in a competitive environment and the public’s interest in regulation within an orderly marketplace.”
Purser noted the Second Circuit decision “comes on the heels of a ruling in Washington State that determined the State of Washington should repay Costco for approximately $1.9 million of legal fees despite the fact that the Ninth District Court of Appeals ultimately upheld the vast majority of Washington’s challenged laws and ruled against Costco.
“States must continue to defend their laws as special interests work to undermine effective alcohol regulation,” he said.
In the New York decision, Plaintiffs, led by Prof. Alex Tanford, sought to “mimic the concerns addressed in Granholm by contending that the New York law is invalid because it grants in-state retailers benefits not afforded to out-of-state retailers,” the court observed.
It rejected Tanford’s argument for at least two reasons. First, that argument is directly foreclosed by Granholm’s express affirmation of the legality of the three-tier system. New York can require wholesalers and retailers to be both present and licensed in the state.
Second, New York’s law treats in-state and out-of-state liquor evenhandedly under the state’s three-tier system, and thus complies with Granholm’s nondiscrimination principle. “Because New York’s laws evenhandedly regulate the importation and distribution of liquor within the state, we hold that they do not run afoul of the Commerce Clause,” the court said.
The Delaware General Assembly voted to double licensing fees for bev/al vendors, and approved an additional fee for those who wish to remain open on Sunday, the second-busiest shopping day of the week.
The state finance department estimates the levies will raise an additional $600,000 a year.
But the legislators rejected a call to raise taxes on per-bottle and per-can sales.
Shaw Vineyard said it named Elmira Distributing to distribute its wines across the state of New York. Shaw is a boutique wine producer on the western shore of Seneca Lake in Upstate New York. It produces just 3,000 cases a year.
Malibu (Pernod Ricard) said it has partnered with Reef Check, a nonprofit dedicating to monitoring, protecting and rehabilitating reefs worldwide and will offer a limited-edition, Reef Check-inspired bottle, will make a charitable donation to Reef Check, and will offer consumers the opportunity to be one of 10 persons to receive internships established to help maintain coral reefs in Thailand, the Maldives or the Philippines.
In a note to clients after Constellation Brands reported its fiscal first quarter earnings, UBS Securities; lead beverage analyst Kaumil Gajarawala, reiterated his Buy recommendation on Constellation Brands’ stock.
“We do not believe the market is appropriately valuing the internal improvement at STZ, with the new CFO Bob Ryder steadily strengthening the balance sheet, improving ROIC and divesting non-value-added assets. We do not believe any acquisitions are imminent,” he said. He expects the stock to reach $16. The stock closed yesterday at $13.69.
Turkey agreed to end tax discrimination against imported spirits, including whisky, rum, liqueurs, brandy, gin and vodka
News of the breakthrough on spirits tax reform, part of Turkey’s EU membership talks, follows a 30% reduction in the tax discrimination faced by whisky and rum in Turkey in April 2009, as well as smaller cuts for all other spirits (due to the slightly lower starting rates). Similar reductions will now take place in 2012 and 2015, and by 2018 there will be uniform taxation for all spirits.
Jamie Fortescue, Director General of the European Spirits Organisation said:
“The EU-Turkey agreement on spirits tax reform is a major boost. Removing discrimination is one of our top international priorities and we’re delighted that spirit drinks will have the opportunity to compete on a level tax playing field in Turkey in the future.
“The fact that the Turkish authorities have already reduced the tax on spirits, and have agreed a timetable for a non-discriminatory tax rate to be introduced is very welcome news. The European Commission and European Council have worked hard on this long running issue, and we are grateful for their support.”
It was a heck of a story that Bloomberg put out (and one of our competitors picked up): Diageo, the world’s largest liquor company, was getting $2.7 billion in TARP money.
There was only one problem: It wasn’t true.
To begin with, Diageo wasn’t mentioned in the TARP bill at all.
It’s a complex brew (pardon the pun, but Diageo owns Guinness, so it’s in the brewing business, too) that involves economic development, Diageo’s corporate strategy to control production and the arcane tax rules involving “cover over.”
Let’s start at the beginning. Rum produced in Puerto Rico or the U.S. Virgin Islands is subject to the same Federal excise taxes as Bourbon produced in Kentucky. But under a tax provision adopted in 1954 virtually all that excise tax is collected by Alcohol & Tobacco Tax & Trade Bureau and then handed over to Puerto Rico or the Virgin Islands, ostensibly to be used for economic development.
Like most tax “breaks” it’s not permanent. It has to be “extended,” and last year the extender was wrapped into the TARP bill, which was rushed through Congress, ostensibly to save the world’s financial system from collapse.
How much Puerto Rico gets from the carryover depends upon how much rum is produced there and sold in the U.S.
Here’s where it gets interesting: Diageo has been using a rum base produced by family-owned Distilleria Serrrales Inc. in Puerto Rico to make Captain Morgan Spiced Rum. Captain Morgan has been growing nicely, and Diageo’s execs have been worrying about the possibility that growth might outpace supply.
So Diageo decided to build its own distillery. And officials in the U.S. Virgin Islands made a more attractive offer to get the distillery than Puerto Rico made to keep it. Construction began on the new Captain Morgan distillery late last year in St. Croix, USVI.
When production begins at the new St. Croix facility, those “cover over” dollars will shift from Puerto Rico to the USVI. Needless to say, Puerto Rico’s not very happy about that.
Under a contract with the USVI government, Diageo will get some money for promotion of Captain Morgan. The contract, which is separate from the TARP bill, says the money will come from the “cover over” payments. But if the cover over payments were to disappear, the USVI Government remains obligated to make payments to Diageo.
Castle Brands said its sales for fiscal 2009 narrowed 4.3% to $26.1 million, and the company’s net loss narrowed 21.4% to $21.7 million in fiscal 2009. A year before the company’s net loss was $27.6 million.
But sales were actually better, the company said. It explained that net sales for fiscal 2008 included $2.3 million in excise and value added taxes from a one-time sale in Ireland. “Excluding the effects of this one-time $2.3 million increase in the prior period, net sales increased 4.3% in fiscal 2009.”
The message was clear: When you look at the pro-forma net sales increase of 4.3% and the narrower net loss of $21.7 million, the company is seeing improved results.
Castle noted that U.S. case sales increased 1% to 206,532 cases in fiscal 2009. International case sales fell to 83,806 cases from 108,469 cases. Total case sales for fiscal 2009 were 290,338 cases from 313,288 cases a year earlier.
The company noted that its international strategy was changed to de-emphasize unprofitable brands and markets and distribution relationships were “recrafted to achieve positive returns.”
All three major Boru distribution relationships in the British Isles were renegotiated during the year and Gosling’s rums and Clontarf Irish Whiskey became the top priority brands for international development, the company said. With this change in emphasis, Clontarf sales grew by 28% and Gosling’s continued its steady development.
The recession hasn’t caused Americans to cut back on drinking, a new Gallup Poll finds.
But other studies have found that while Americans may be drinking about the same amount of beer, wine and spirits, they are spending less – either by “trading down” or by not drinking as much at bars, restaurants and clubs.
When Gallup asked “Do you have occasion to use alcoholic beverages such as beer wine or liquor, or are you an abstainer,” 64% said they drank and 36% said they abstained. This is unchanged from last year.
About two-thirds of drinkers in the new survey said they had at least one drink within the past week. This, too, is unchanged. As for those who have at least eight drinks during the week, this, too, is unchanged at 13%.
Beer remains America’s preferred beverage. Some 40% of drinkers say they prefer beer, compared to 34% for wine and 21% for spirits. Wine was up three points in the last year, while beer and spirits both lost a couple of points.
